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Accenture

Even with recent large natural gas discoveries and strong inventories, the supply of natural gas isn’t elastic enough to handle significant demand increases. Rising gas prices will push coal back into the money despite coal plants’ high costs to comply with EPA regulations.

When NYMEX closed on Tuesday, Sept. 27, Henry Hub natural gas spot prices were $3.92 per MMBtu. 24 months earlier in June 2009, the same spot prices ranged between $3.50 and $4.20 per MMBtu. Other than seasonal spikes due to increased heating demand, there has been a prolonged period of cheap natural gas. Even though natural gas prices have been slowly rising over the past few years, the industry has been wondering whether natural gas prices will ever rebound to the historical levels seen between 2006 and 2008.

When a capital-intensive industry enters an asset-building cycle, many companies will operate in the red for a few years or more. That’s not necessarily a bad thing, as cap-ex investments represent growth for shareholders. The devil is in the details, however, and companies facing a large slug of environmental compliance investments might produce disappointing returns over the next few years.

(September 2011) Our annual ranking tracks the publicly traded electric and gas companies that produce the greatest value for shareholders. Despite the year’s topsy-turvy financial markets, perennial performers like DPL, PPL and Exelon return to the top of the list. Others face looming cap-ex burdens as regulators impose new mandates and requirements. Leading companies are positioning for growth, despite a challenging landscape.

The next decade will bring serious disruption to the utility industry. But with cooperation from regulators and legislators, utility companies will be able to shift their business models to capture significant value—both in existing businesses and emerging ones.

Non-traditional competitors may pose a threat to investor-owned utilities. New research shows that real competition is coming from brick-and-mortar retailers, cable and phone companies, and online retailers like Amazon and Google. The competitive challenge calls upon utilities to strengthen customer relationships.

The industry is learning some painful lessons about public communication. Hype has given way to hysteria over smart grid rollouts, and forced many companies to re-think their strategies. Capturing the benefits of new technology requires a straightforward approach to selling the benefits — and facing the costs.

Utilities are just beginning to learn how to engage customers. Across business models and regulatory frameworks, realizing the full potential of smart metering requires a new core competence in consumer support.

Like other California electric utilities, San Francisco-based Pacific Gas & Electric (PG&E) has been scrambling to meet the state’s renewable portfolio standard (RPS), which requires suppliers to obtain at least 20 percent of their power from renewable energy sources by 2010. Though the RPS includes a variety of technologies, renewables developers are choosing utility-scale solar power more than any other resource, says Hal La Flash, PG&E’s director of emerging clean technologies.